The Animal of Public Sentiment

At the beginning of this month the major market indices took a hit, with a little relief occurring immediately before the closing bell. Analysts stated much of this is due to the chronic poor performance of stocks in the month of September. They further described how managers of mutual and hedge funds sold large blocks of stock in an effort to spare their customers (and their necks) in anticipation of the monthly market mudslide.

It seems to me that by selling their stocks, they created the mudslide. Herein lies the problem with public sentiment. Even when inaccurate, it is still much louder than a solo voice of truth. Had every fund manger chosen to hold stocks, the market wouldn't have experienced such a correction. If one manager decides to not give in to public sentiment, and therefore keep his/her money in the game, that person would still be punished by the fear of all the others. It takes a unanimous decision by the managers to roll the dice in September, and possibly break the trend associated with the month.

It is easy to see the same thing played out in the race for the White House. Public sentiment, true or false, must be affirmed to win the presidency. If a million people believe we are in a recession (though we technically are not), then a presidential candidate cannot say otherwise without being ridiculed. A poor leader is controlled by the ignorance of his/her constituents. It takes a wise leader to gently realign public sentiment to face true north.